Tips received at work do not count towards your earning for the purposes of the National Minimum Wage. However, you are still required to pay Income Tax on these tips and may also need to pay National Insurance.

The person who is responsible for reporting the tax, and whether National Insurance is payable, depends on how the customer provided the tip and how tips are managed at your workplace.

Tips can be paid:

• directly from a customer in cash or electronically, for example through a mobile app;
• as part of your pay packet from your employer; or
• through a separate system for managing and sharing out tips at your workplace (known as a ‘tronc’).

The Department for Business and Trade together with the Department for Business, Energy & Industrial Strategy published A Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges during October 2009.

Employers are not legally required to follow the Code of Practice, but if they do they should have a policy on tips that includes information on:

• how tips are distributed or shared;
• the name of the person responsible for managing tips (if there is one);
• if tips paid directly to staff members by customers are treated differently;
• any deductions taken from tips; and
• what happens during leave, for example holidays, sick leave, parental leave.

Please note, it is illegal for an employer to pay wages ‘cash in hand’ without deducting the required tax and National Insurance contributions.

There is no specific requirement for employers to provide employees with transport home. Nevertheless, an employer has a duty of care to their employees, which means that they should take all steps which are reasonably possible to ensure their health, safety and wellbeing.

Ensuring that an employee gets safely home during unsocial working hours could fall within the employer's 'duty of care'. Often in these situations an employer will pay for a late night taxi for an employee to travel home from work. This can also happen where there is a breakdown in a car sharing arrangement.

There is usually a taxable benefit where an employer provides free transport or pays for transport for an employee’s journey between home and a permanent workplace. However, there is a special tax exemption available where employees are required to work late 'occasionally'.

The exemption applies only where the following conditions are satisfied:

• The employee is required to work later than usual and until 9pm or later.
• The occasions are irregular.
• By the time the employee ceases work, either public transport has stopped, or it would not be reasonable to expect the employee to use public transport.
• The transport is by taxi, hire car or similar private road transport.

There is also an overall maximum allowance of 60 qualifying journeys in a tax year. No tax relief is available where employees work late by choice, where late working is a regular feature of employment or where the employer does not reimburse travel expenses.

There are a number of government approved share schemes which offer various incentives to employees. The rules of the schemes vary but they are all designed to help incentivise employees by giving them the opportunity to invest in their employer's business. This in turn helps businesses retain and recruit key staff by offering tax efficient benefits.

They can be tax advantaged or non-tax advantaged. The tax approved schemes are Share Incentive Plans (SIPs), Save As You Earn (SAYE) schemes, Company Share Option Plans (CSOPs) and Enterprise Management Incentive (EMI) schemes. You can also qualify for tax advantages if you are an employee shareholder.

Some employers offer employee share schemes which are not approved by the government. The purchase of shares in unapproved share schemes are subject to the usual tax rules. These schemes are called non-tax advantaged share schemes, which can be:

• ‘acquisition schemes’, which give an employee free or discounted shares; or
• ‘share option schemes’, where an employee can buy shares.

Employees may also receive dividends if they own shares. These are taxed in line with the usual rules.

There are many advantages to creating an employee suggestion scheme where employees are rewarded for making suggestions that benefit your business. Apart from the value that these suggestions can have in saving money or driving new business ideas there are also tax-free benefits associated with running these schemes.

HMRC list two kinds of award that can be given to employees:

• Encouragement awards – for good suggestions, or to reward your employees for special effort. Encouragement awards are exempt from tax and National Insurance up to a small limit of £25. Any excess paid above £25 will need to be reported through payroll.
• Financial benefit awards – for suggestions that will save or make your business money. Financial benefit awards are exempt up to a generous, maximum cap of £5,000.

The amount that is exempt is the greater of:
– 50% of the money you expect the suggestion to make or save your business the year after you implement the idea, or
– 10% of the money you expect it to make or save your business in the first five years after implementation.

There are other conditions that must be met for the payments to employees to be tax-free. We can assist you in designing and setting up a tax efficient suggestion scheme and providing basic scheme rules.

An employee can obtain a benefit when provided with an employment-related cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the commercial rate the employee would have to pay on a loan obtained elsewhere. These types of loans are referred to as beneficial loans.

There are a number of scenarios where beneficial loans are exempt, and employers might not have to report a benefit to HMRC or pay tax and National Insurance. The most common exemption relates to small loans with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year.

This list also includes loans provided:

• in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee);
• to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out;
• under identical terms and conditions to those offered to the general public (this mostly applies to commercial lenders);
• that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief; or
• using a director’s loan account as long as it is not overdrawn at any time during the tax year.

New rules that stop employers from withholding tips from people working in the hospitality, leisure and services sectors are a step closer following the publication of a new Code of Practice on tipping.

The Employment (Allocation of Tips) Act 2023 colloquially known as the Tipping Act received Royal Assent on 2 May 2023. However, the measures in the Act do not come into force until all the necessary secondary legislation is in place. The measures are expected to come into force on 1st October 2024, once Parliament has approved them.

This means that more than 2 million workers will have their tips protected. HMRC has estimated that this new law will mean an estimated £200 million a year will go back into the pockets of hard-working staff by retaining tips that would have otherwise been deducted.

The statutory Code of Practice will provide businesses with advice on how tips should be distributed among staff. The updated Code of Practice will be statutory and have legal effect, meaning it can be introduced as evidence in an employment tribunal.

Workers will also be given new rights to view an employer’s tipping policy and their tipping record, which will help them to bring forward a credible claim to an employment tribunal.

The Business and Trade Minister said:

‘It is not right for employers to withhold tips from their hard-working employees. Whether you are cutting hair or pulling a pint, this government’s legislation which will protect the tips of workers and give consumers confidence that when they leave a tip, it goes to the hardworking members of staff.’

The Cycle to Work scheme allows employers to provide bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme must be offered to all employees and the bike must be used mainly for qualifying journeys i.e., between home and work. However, private use of the bike is also allowed. Where the scheme conditions are satisfied employees can benefit from a significant tax and National Insurance Contributions (NICs) exemption. In addition, there is no employer liability to pay Class 1A NICs.

The cycle to work benefits only relate to the loan period. However, it is commonplace for an employer or a third party bicycle provider to offer the employee the bicycle / equipment they have been using for sale after the loan period has ended. The bike may be offered to the employee for sale at a fair market value, but this must be done as a separate agreement.

Employers of all sizes across the public, private and voluntary sectors are eligible to take part in the scheme to provide (technically loan) bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme can also include electronic bikes known as e-bikes.

Employers can register on a voluntary basis (before the start of the tax year) to report and account for tax on certain benefits and expenses via the RTI system. This is known as payrolling and removes the requirement to complete a P11D for the selected benefits at the tax year end.

The deadline for submitting the 2023-24 forms P11D, P11D(b) and P9D is 6 July 2024. These forms can be submitted using commercial software or via HMRC’s PAYE online service. HMRC no longer accepts paper P11D and P11D(b) forms. Employees must also be provided with a copy of the information relating to them on these forms by the same date. P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits.

It should be noted that a P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled. The deadline for paying Class 1A NICs is 22 July 2024 (or 19 July if paying by cheque).

Where no benefits were provided from 6 April 2023 to 5 April 2024 and a form P11D(b) or P11D(b) reminder is received, employers can either submit a 'nil' return or notify HMRC online that no return is required. Employers should ensure that they complete their P11D's accurately, including all the details of cars and loans provided. There are penalties of £100 per 50 employees for each month or part month a P11D(b) is late. There are also penalties and interest if late payments are made.

If you use your own vehicle for business journeys you may be able to claim a tax-free allowance from your employer known as a Mileage Allowance Payment or MAP. The allowance is paid when employees use their own car, van, motorcycle or bike for work purposes. It is important to note that this tax-free allowance is not available for journeys to and from work but is available where employees use their own vehicles to undertake other business-related mileage. 

Employers usually make payments based on a set rate per mile depending on the mode of transport used. There are approved mileage rates published by HMRC. For cars, the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile. An equivalent payment of 20p per mile is available for bicycle travel and 24p per mile for motorcycle travel. These rates have been fixed for many years and HMRC has recently confirmed that they will continue to apply for the 2024-25 tax year.

If an employee travels with business colleagues, they can claim an additional 5p per passenger per business mile for each qualifying passenger. Where an employer pays less than the published rates, the employee can make a tax relief claim for the shortfall using Mileage Allowance Relief (MAR). There is no equivalent to MAR for passenger payments, which means if the employer pays less than 5p per mile to carry a passenger, the driver cannot claim any tax relief on the difference.

It is important to note that if employees are paid more than the approved mileage rates then the excess is treated as a BiK. Conversely, if employees are paid less than the published rates then they can make a tax claim for the shortfall using MAR. There is no equivalent to the MAR for passenger payments.